By Gary Frueholz, Engel & Voelkers Real Estate
“The future is faster than you think!” Peter Diamandis, American Spaceflight Entrepreneur
Crypto currency is a relatively new concept that in most cases baffles people. Elon Musk joked when he hosted Saturday Night Live on May 8, 2021 that even he did not really understand it.
Whether crypto currencies will be the new medium of exchange or not remains to be seen. But as skepticism toward traditional government issued currencies grows, new platforms such as crypto or digital currencies are gaining momentum and acceptance. Some real estate transactions are now even being conducted with digital currencies. Christie’s International Real Estate has launched a Crypto Division to handle real estate transactions though digital currencies. As Aaron Kirman, CEO of Christie’s new Crypto Division said, “we realize that people are going to want to pay for houses using crypto.”
Cryptocurrencies are digital tokens, with Bitcoin being the most well known. They are a type of digital currency that allows people to make payments directly to each other through an online system. Crypto currencies are worth what people will pay for the tokens, but unlike government monetary systems which can expand the money supply, the volume of tokens is limited.
An in depth understanding of crypto may be elusive, but the objectives, advantages, and drawbacks of digital currencies can and should be understood on a basic and general level. Some of the advantages of crypto are:
- Faster transactions due to the use of the advanced “blockchain” technology (advanced encryption techniques) and automated processes.
- Reduced costs by eliminating or reducing the function of intermediaries such as banks, brokers, escrow agents, and title companies. Crypto transactions can lead to lower fees associated with traditional real estate transactions.
- Enhanced security with tamper-proof record of transactions. The enhanced transparency reduces the risk of fraud and increases verifiable property records.
- Increased connectivity to international markets since digital currencies transcend borders and allow international buyers to avoid currency conversions and traditional banking restrictions.
- Tokenization more readily allows fractional ownership where investors can purchase smaller and more affordable shares in real estate. Also, tokenization leads to increased liquidity since tokens can more easily be traded.
- A higher degree of privacy results from the digital currency approach.
- The increased automation creates a streamlined process of payments, title transfer, and contracts.
Some potential areas of concern with the new frontier of digital currencies are:
- Market volatility of this new and complex technology.
- Regulatory uncertainty, such as tax issues, from various levels of government.
- Potential security concerns as digital currencies are more widely understood.
The objective in real estate now is not to immediately use digital currencies in a transaction, but rather to become familiarized with this new frontier of commerce on a macro level. Additionally, we must realize that the future may be approaching us faster than we think, and this future includes crypto currencies.
Gary Frueholz is a realtor with Engel & Volkers Real Estate, a past member of the Alhambra Planning Commission, a Certified Senior Real Estate Specialist, Certified International Property Specialist, and can be reached at 626-318-9436.
Image credit: Creative Commons Attribution 4.0, creator QuoteInspector.com
